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DE RUEHBJ #2103/01 0890022
ZNR UUUUU ZZH
O 300022Z MAR 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6316
INFO RUEHCN/AMCONSUL CHENGDU 8073
RUEHGZ/AMCONSUL GUANGZHOU 2661
RUEHGH/AMCONSUL SHANGHAI 7208
RUEHSH/AMCONSUL SHENYANG 7753
RUEHHK/AMCONSUL HONG KONG 9088
RUEHIN/AIT TAIPEI 6341
RUEHKO/AMEMBASSY TOKYO 1259
RUEHUL/AMEMBASSY SEOUL 0002
RUEHMO/AMEMBASSY MOSCOW 8621
RUEHGV/USMISSION GENEVA 1725
RUEAHLC/DHS WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC

UNCLAS SECTION 01 OF 23 BEIJING 002103 
 
SIPDIS 
 
State for EAP/CM - JYamomoto and EB/IPE - EFelsing 
USTR for China Office - AWinter; IPR Office - RBae; and OCG 
- SMcCoy 
Commerce for National Coordinator for IPR Enforcement - 
CIsrael 
Commerce for MAC 3204/ACelico, LRigoli, ESzymanski 
Commerce for MAC 3043/McQueen 
LOC/ Copyright Office - MPoor 
USPTO for Int'l Affairs -- LBoland 
DOJ for CCIPS - Asharrin 
DOJ for SChembtob 
FTC for Blumenthal 
FBI for LBryant 
DHS/ ICE for IPR Center - DFaulconer 
DHS/CBP for IPR Rights Branch - PPizzeck 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD ECON WTRO CH
SUBJECT: CHINA MISSION 2007 SPECIAL 301 RECOMMENDATION: 
PRIORITY WATCH LIST AND CONTINUED SECTION 306 MONITORING 
(PART TWO) 
 
REF:   (A) 2006 BEIJING 05968 
 
(B) 2006 BEIJING 10459 
(C) 2006 BEIJING 24195 
(D) 2006 GUANGZHOU 15230 
(E) 2006 GUANGZHOU 21191 
(F) 2007 SHANGHAI 1774 
(G) 2007 SHANGHAI 1866 
(H) 2006 CHENGDU 946 
(I) 2006 CHENGDU 1095 
 
------- 
Summary 
------- 
 
¶1. (SBU) This is part two of the Mission's reporting on 
"Special 301" related developments.  The Mission's 
recommendations that China should once again be placed on 
the Priority Watch List, with Section 306 monitoring, and 
considered for an appropriate WTO case on IPR, were set 
forth in the first cable.  This cable focuses on 
developments in IPR enforcement.  Although there remain 
certain exceptions, the principal challenge that rights 
holders face in China is not the TRIPS incompatibility of 
the law, but rather the enormous difficulties in enforcing 
the law as written.  These issues are particularly acute in 
certain fields, such as criminal copyright law.  Additional 
cables are being prepared on local enforcement issues. 
 
-------------------------- ------------------- 
China's Three Part System: Civil, Criminal and 
Administrative 
-------------------------- ------------------- 
 
¶2. (SBU) China's enforcement system consists of three 
components: civil, criminal and administrative.  Standards 
for initiating a civil, criminal, or administrative action 
are different, as is the scope of activities encompassed by 
a violation of the relevant legal process.  For example, 
not all copyright infringements under China's copyright law 
are criminalized.  Moreover, administrative copyright 
action may only be taken when the infringing action harms 
"the public interest."  Generally speaking, the broadest 
scope of infringing activity is captured by the civil 
system.  The systems additionally differ from each other in 
that they: have different levels of deterrence; use 
different procedures and enforcement officials; and have 
different costs of procuring a remedy.  There are also 
different standards for: seizing infringing goods, 
materials and equipment or assets; referring cases from one 
system to the other; preserving and using evidence; 
transparency, etc. 
 
------------------------------ 
Using Chinese Statistical Data 
------------------------------ 
 
¶3. (SBU) China maintains extensive IPR statistical data 
that can be useful in evaluating the strengths and 
 
BEIJING 00002103  002 OF 023 
 
 
weaknesses of its three-part IPR system.  Many Chinese 
agencies also maintain statistical data on the number of 
foreign-related cases, which can be useful in determining 
the extent to which foreign rights holders are being fairly 
treated under China's system.  However, there is no 
consistent definition of what constitutes a "foreign- 
related case" - for example, whether it is based on the 
ultimate owner of the right, the location of the litigant, 
or whether a Chinese litigant has a foreign investor.  The 
increasingly active, but still low level of foreign 
involvement in IPR enforcement is a characteristic of 
China's enforcement system overall, with the sole exception 
of Customs enforcement, where Chinese officials have 
informed the Mission that foreign rights holders 
predominate.  In evaluating the statistical data, it is 
important to keep in mind that overall goals of IPR 
enforcement are to deter and reduce infringing activity. 
This means that, at a minimum, potentially deterrent cases 
must be well publicized in order to have an impact. 
Increased enforcement alone may mean that a problem is 
being deterred, or that the problem is growing. 
Statistical comparisons between countries are often 
difficult to make because of differences in infringing 
activities, differences in compensation and punishment, the 
differing availability of civil, criminal, or 
administrative remedies, and other factors.  Given China's 
pre-WTO legacy of a separate legal regime for foreigners 
and increasing nationalism in IPR matters, the United 
States is also concerned about the number of cases brought 
involving foreign rights holders. 
 
------------------------------------------ 
Year End 2006 Statistics Not Yet Available 
------------------------------------------ 
 
¶4. (SBU) China's IPR statistics data for a given year are 
generally not made available at the earliest until 
March/April of the following year.  The Mission will seek 
to update the data provided herein as it becomes available. 
 
-------------------- 
Criminal Enforcement 
-------------------- 
 
¶5. (SBU) Anecdotally, it remains quite difficult and 
expensive for a foreign rights holder to bring a criminal 
IPR case in China.  While QBPC reports that there were 
larger numbers of successfully prosecuted IP criminal cases 
in 2006 than in 2005, the majority of members continued to 
have limited experience in this area.  U.S. copyright 
industries also report continuing difficulties in bringing 
criminal IPR cases before local enforcement agencies.  In 
addition, the Trade Facilitation Office at the Embassy has 
handled several cases involving China's rejection or 
dismissal of criminal IPR cases involving U.S. rights 
holders which appeared to involve infringing activities 
conducted on a commercial scale. 
 
 
BEIJING 00002103  003 OF 023 
 
 
¶6. (SBU) For several years, USG has looked to the quantity 
and quality of China's overall criminal IPR investigations, 
prosecutions and convictions (both cases initiated and 
concluded) as a benchmark for determining the deterrent 
capacity of China's IPR system.  This data has become 
especially important after the promulgation in December 
2004 of a revised judicial interpretation, which lowered 
many criminal thresholds for IP crimes.  During the 
December 2006 meeting of the IPR Working Group, China's 
Supreme People's Court compared statistical data for 
January-August 2006, with similar statistics for 2005 and 
¶2004.  There was a 15% growth rate in arrests and a 5.6% 
growth rate in prosecutions in 2004 (presumably for the 
calendar year), compared to a 40.4% growth rate in arrests 
and a 51.7% growth rate in prosecutions for 2005 
(presumably for the calendar year).  Arrests increased by 
47.8% from January - August 2006, and prosecutions 
increased by 51.8% during this period.  This data, however, 
may have included IPR-related prosecutions for "fake and 
shoddy goods" and "illegal business operations," which can 
occasionally obscure whether the underlying offense is an 
IPR-offense or a regulatory offense, which may include an 
IP element.  According to industry reports, overall there 
were 796 criminal cases handled in 2006, an increase of 52% 
compared to 2005 (Speech of Deputy Chief Judge Xiong 
Xuanguo at the Third Global Anticounterfeiting Congress in 
Geneva, January 2007). 
 
¶7. (SBU) This trend towards increasing criminal IPR cases 
was also evident in 2005, and may have continued into 2006. 
In 2005, the number of criminal IPR cases of first instance 
initiated increased year to year over 2004 by 28 percent to 
3,567.  Of these cases, 524 involved IPR crimes under the 
IPR section of the criminal code, an increase of 35 
percent.  In addition, there were 1,117 cases involving 
fake and shoddy goods, an increase of 16 percent, and 1,926 
were for illegal business operations, an increase of 34 
percent.  The number of cases resolved was 3,529, an 
increase of 28 percent, involving 5,336 people, an increase 
of 31%.  As a result of these cases, 2,963 people (or 56 
percent) were sentenced, an increase of 24 percent.  Among 
cases resolved during 2005, there were 505 convictions of 
crimes under the IP section of the criminal code, involving 
741 people.  There were 1,121 fake and shoddy goods cases 
involving 1,942 people, and 1,903 illegal business 
operation cases, involving 2,653 people.  Overall, the 
number of individuals sentenced increased by 31 percent, 
among which 2,963 suspects were sentenced to a fixed term 
imprisonment, or an increase of 24 percent.  As discussed 
below, the Chinese data for 2006 is thus far being 
presented in a manner that is difficult to compare.  By 
comparison, in a recent speech, the Vice President of the 
Supreme people's Court stated that in 2006 there were 3,508 
people convicted and sentenced. (China's Top Judge: 
Crackdown on Crime Promotes Social Stability, Human Rights 
protection, Xinhua, Mar. 13, 2007). 
 
-------------------------------------- 
 
BEIJING 00002103  004 OF 023 
 
 
Still Limited Criminal Copyright Cases 
-------------------------------------- 
 
¶8. (SBU) The aggregated data China provides obscures the 
limited number of criminal copyright cases that China has 
prosecuted since WTO accession.  In its Section 301 report, 
IIPA estimates the total number of criminal copyright cases 
since China's WTO accession at 51, very few of which 
involved American rights holders.  During the past several 
years, the Mission has made repeated requests, with limited 
results, to China's enforcement agencies for data on 
criminal copyright cases, especially cases involving 
foreigners.  Although there have reportedly been a few 
pioneering criminal cases involving Internet infringement, 
the burgeoning Internet piracy environment further 
underscores the need for a dramatic ramp-up in Internet 
copyright enforcement, including modernization of laws and 
enforcement resources. 
 
------------------------ ------------------------- 
Separate Data on Criminal Copyright Cases for 2005 
Unavailable 
------------------------ ------------------------- 
 
¶9. (SBU) In January 2007 China published the 2006 IPR 
Yearbook, which further belies the assertion that China has 
a criminal copyright remedy available.  In the 2005 IPR 
Yearbook, China reported only 14 concluded criminal 
copyright cases for 2004, as well as 321 concluded 
trademark related cases and 48 concluded trade secret 
related cases.  Of these criminal cases, only five people 
were sentenced to more than five years imprisonment; and 
only one case involved confiscation of assets.  China has 
changed the reporting in this yearbook from 2004 to 2005 to 
remove separate references to criminal copyright cases.  We 
believe that the change in data reporting in this Yearbook 
may in fact be intended to obscure the possible TRIPS 
deficiency in lack of an available criminal copyright 
remedy. 
 
---------------------------- --------------------------- 
Continued Prosecutions Under Illegal Business Operations 
Laws 
---------------------------- --------------------------- 
 
¶10. (SBU) Chinese enforcement officials repeatedly note 
that they bring criminal cases more easily under illegal 
business operations laws (Article 225 of the Criminal Code) 
with more deterrent penalties.  Arguably, prosecuting under 
"illegal business operations" is easier if one need not 
provide the ownership of each title that is infringed. 
However, China can also facilitate prosecution of criminal 
copyright cases by reducing procedural burdens and better 
engaging rights holders.  Positive steps in this direction 
might include sharing of optical disc exemplars, enabling 
foreign trade associations to staff their offices with more 
than five people, and specifically authorizing use of 
statistical sampling techniques, such as apparently is done 
 
BEIJING 00002103  005 OF 023 
 
 
in Jiangsu Province, among other steps.  China's 
unwillingness to provide detailed information on criminal 
copyright cases as part of the "Article 63" request further 
underscores the weakness of China's criminal copyright 
data.  Five years after WTO accession, the continuing lack 
of transparency in "illegal business" cases makes it 
difficult to determine whether this law is affording any 
meaningful relief to U.S. rights holders. 
 
-------------------------- ------------------------------ 
Increased Criminal Justice Cooperation Remains A Priority 
-------------------------- ------------------------------ 
 
¶11. (SBU) Contributions to reduction in infringement levels 
can also occur through increased criminal justice 
cooperation.  There has been some increased cooperation on 
international criminal IPR cases in 2006 through the 
bilateral Joint Liaison Group (JLG), although the numbers 
of cases thus far are too few to make a significant impact. 
Operation Ocean Crossing, the second joint U.S.-Sino law 
enforcement operation, resulted in the largest People's 
Republic of China (PRC) seizure of counterfeit 
pharmaceuticals in that nation's history.  The joint 
investigation by Immigration and Customs Enforcement and 
Chinese law enforcement dismantled a major China-based 
transnational counterfeit pharmaceutical manufacturing and 
distribution organization engaged in the worldwide 
distribution of counterfeit Viagra and Cialis, with 
proceeds estimated in the millions of dollars.  Also in 
2006, China and the U.S. agreed to establish an IPR experts 
group under the Joint Liaison Group.  Efforts have been 
made by U.S. law enforcement in the JLG to support JCCT 
efforts to promote sharing of forensic exemplars for 
optical media, which have thus far been unsuccessful. 
 
------------------------- --------------------- 
Mission Supports An Appropriate WTO Case On IPR 
------------------------- --------------------- 
 
¶12.  (SBU) The lack of an effective criminal copyright 
remedy as well as overall high thresholds appear on the 
surface to be TRIPS violations and also support Prority 
Foreign Country designation.  However, there are some 
serious considerations that may mitigate, in particular, 
against bringing a WTO case.  First, lowering thresholds in 
and of itself may not result in any additional criminal 
cases.  There are already numerous criminal IPR cases above 
relevant criminal thresholds which are rarely investigated 
or prosecuted.  Moreover, China could also easily lower 
thresholds by requiring that cases at lower thresholds be 
privately, rather than publicly, prosecuted.  Article 61 of 
the TRIPS agreement does not explicitly require public 
prosecutions of IPR crimes.  (Note: In January 2007, the 
Supreme People's Court in fact issued an "opinion" 
encouraging more private prosecutions, which may be in 
anticipation of a WTO case.  End Note).  USTR itself has 
also identified other criminal IPR issues in its 2006 WTO 
Compliance Report, which include "the lack of criminal 
 
BEIJING 00002103  006 OF 023 
 
 
liability for certain acts of copyright infringement, the 
profit motive requirement in copyright cases, the 
requirement of identical trademarks in counterfeiting 
cases, and the absence of minimum, proportional sentences 
and clear standards for initiation of police investigations 
in cases where there is a reasonable suspicion of criminal 
activity."  To these legal issues might also be added the 
misallocation of human resources to the administrative 
trademark system, which limits the amount of copyright 
administrative and police resources that can be dedicated 
to enforcement. 
 
----------------------------- --------------------------- 
Civil Enforcement Increasing, But Foreigners Play A Small 
Role 
----------------------------- --------------------------- 
 
¶13. (SBU) Although criminal enforcement has been a 
bilateral priority, IPR is "primarily a private right." 
(TRIPS Agreement, Preface).  Deterrent civil enforcement 
also needs to remain a USG priority.  An effective and 
adequate civil remedy is required to be made available for 
all TRIPS-defined IPR rights (TRIPS, Art. 41).  Civil 
litigation of IP rights showed significant increases in 
¶2006.  IPR Tribunals accepted a total of 14,219 civil IPR 
cases in 2006, and closed 14,056, increases of six percent 
and five percent, respectively.  The number of second 
instance civil IPR cases accepted and closed in 2006 
decreased to 2,686 and 2,656, or declines of 14 and 12 
percent, respectively.  Cases initiated and closed by IP 
right were: patents (3,196/3,227), trademarks 
(2,521/2,378), copyright (5,751/5,719), technology transfer 
contracts (681/668), unfair competition (1,256/1,188), and 
others (846/844).  During the period from November 2005 to 
October 2006, there were reportedly 67 cases initiated for 
preliminary injunctions, and 69 cases were decided during 
that time period.  The rate of granting preliminary 
injunction requests was reportedly 92 percent.  There were 
1,032 cases for evidence preservation, and 953 cases 
concluded, with a "grant rate" of 97 percent.  There were 
also 560 asset preservation cases, and 494 cases concluded, 
with a grant rate of 95 percent.  The "grant rate," which 
China cites indicates the effectiveness of these TRIPS- 
required measures, however, may overstate the percentage of 
the actual number of successful cases, as many cases are 
rejected by the case establishment ("li'an") division of 
the court, where cases are initially accepted for 
adjudication. 
 
¶14. (SBU) The number of foreign-related cases is growing 
rapidly in absolute and percentage terms, but is still a 
small percentage of the overall IPR civil docket.  There 
were several high profile civil IPR cases in 2006, 
including Pfizer's Viagra case and a case brought against 
an affiliate of Sohu by the Motion Pictures Association. 
In 2006, China's courts resolved 353 foreign-related civil 
cases of IPR violation at first instance trials, an 
increase of 52 percent over the previous year.  The number 
 
BEIJING 00002103  007 OF 023 
 
 
of civil IPR cases related to foreign companies was 268 in 
2005, up 78 percent from 2004.  In total, from 2002 to 
2006, China's courts settled 931 foreign-related civil IPR 
cases.  Conservatively, however, the total of foreign cases 
is less than five percent of the overall civil IPR docket. 
 
--------------------------- ---------------------------- 
Mission Supports Overall Improvements in IPR Process and 
Adjudication 
------------------------ ------------------------------- 
 
¶15. (SBU) The Mission continues to support USG agency 
efforts to improve civil process in China through adoption 
of "discovery" evidence production and other procedural 
safeguards, as well as China's streamlining of procedures 
regarding notarization/consularization of powers of 
attorney and other evidence.  Efforts include working with 
the State Department on accession to the Hague Convention 
on Legalization of Foreign Public Documents as well as 
strengthening the expertise, deterrence, and independence 
of IPR adjudication in China. 
 
------------------------- ------------------------------ 
IPR Courts Have Improved, Although Systemic Flaws Remain 
---------------------------- --------------------------- 
 
¶16. (SBU) In its Section 301 report, IIPA notes that "the 
record of China's development of a cadre of well trained 
IPR judges to sit on specialized IPR tribunals at the 
Intermediate level courts in China to hear civil cases has 
been a success."  According to Chinese data, in 2006 there 
were 172 civil IPR courts, 140 IPR collegial panels, with 
1,667 individual IPR judges.  There are 62, 38, and 42 
intermediate courts that can hear patent, plant variety, 
and layout design, respectively.  In addition, there are 17 
basic level courts.  Additional basic level IPR courts were 
being added in early 2007, including in the Beijing area. 
While rights holders such as IIPA have commended the 
increasing expertise of the Chinese IPR courts, they still 
generally complain about such factors such as low damage 
awards, expenses and delays in adjudication, and lack of 
clear safeguards against corruption and political 
influence, all of which impair their overall effectiveness. 
In some respects, the solution to improving the judiciary 
is to have fewer IPR courts at the local level, and to 
establish a national IPR court independent of local 
influence. 
 
---------------------------------- 
Improving Overall IPR Adjudication 
---------------------------------- 
 
¶17. (SBU) IIPA notes in its 301 Report that "China should 
implement similar reforms in the criminal justice system to 
enhance deterrent enforcement against copyright piracy." 
Some experiments are underway to combine some or all civil, 
criminal and administrative adjudication, including at the 
basic and intermediate court levels, which could assist in 
 
BEIJING 00002103  008 OF 023 
 
 
ensuring that courts develop greater expertise in criminal 
and administrative IPR matters by relying on the expertise 
and training developed in the civil division.  Some Chinese 
IPR Agencies have also sought development of specialized 
national appellate IPR courts, like the U.S. Court of 
Appeals for the Federal Circuit, or of courts that combine 
civil, criminal, and administrative IPR adjudication (in 
comparison to the investment China has made in a national 
IPR judiciary at various levels, the United States has one 
national appellate patent court with 12 judges that also 
hears appeals from the U.S. Patent and Trademark Office, 
and has jurisdiction over a range of non-IPR matters).  The 
Mission continues to support many of China's judicial 
reform efforts, along with other trading partners such as 
the European Union. 
 
---------------------- ------------------------- 
Administrative Enforcement Still The Most Common 
Enforcement Vehicle 
-------------------------------- --------------- 
 
¶18. (SBU) As indicated by QBPC, criminal enforcement 
remains extremely important to rights holders, although 
most QBPC members in fact have little experience in its 
use.  There is no comparable U.S. data we are aware of that 
points to the relative importance or unimportance of the 
administrative system to U.S. rights holders.  Data from a 
2006 Japanese government Field Survey shows that the 
administrative system was the principal enforcement remedy 
used by Japanese companies experiencing infringing 
activity, while other forms of enforcement are still 
relatively rare.  Quantitatively speaking, the vast 
majority of China's IPR litigation is administrative.  If 
all enforcement activities by agencies that can enforce an 
intellectual property-related right were collected, we 
estimate that the numbers of administrative IPR actions 
would likely easily exceed 75,000, and perhaps may equal 
200,000 or more.  However, many of these agencies, such as 
the State Administration for Radio, Television and Film; 
the Urban Management Departments of the Bureaus of 
Construction; the Tecnology Supervision Bureau of the 
Administration for Quality Supervision, Inspection and 
Quarantine, and the Tobacco Monopoly; do not separately 
report their IPR-related cases.  The numbers of 
administrative officials involved in IPR matters, by 
Chinese government estimates, also may be in the range of 
400,000, but such numbers are also difficult to calculate. 
Most of them are likely involved in trademark-related 
enforcement.  Even China's understaffed copyright 
administrations have experienced some augmentation in 
staffing in some pilot projects by combining into "cultural 
task forces" with other copyright-related agencies, such as 
culture bureaus, radio, film and television bureaus, press 
and publication bureaus, city management officials (who 
control street side vendors), public security bureaus, and 
others. 
 
¶19. (SBU) The Japanese Field Survey also points to 
 
BEIJING 00002103  009 OF 023 
 
 
continuing problems in administrative enforcement. 
Japanese companies experienced a 42 percent increase in 
administrative actions on behalf of surveyed Japanese 
companies in 2005 compared to 2004.  Confiscation of goods, 
suspension of operation, and fines -- the most significant 
penalties -- had all significantly increased.  Among these 
companies, 27 percent believed that the execution of the 
legal measure under the law had been inappropriate.  Of 
particular note is that confiscation and destruction of 
infringing equipment was rarely applied, and that 30 
percent of firms suffered damages due to repeat offenses, 
an increase from 20 percent in the prior year. 
The problem of recidivist administrative 
offenses underscores a basic weakness of the 2004 Judicial 
Interpretation, which removed a prior "three strikes" rule, 
thereby effectively raising thresholds and failing to deter 
recidivism. 
 
-------------------------------- 
Trademark Data Not Yet Available 
-------------------------------- 
 
¶20. (SBU) Among the various data available on IPR 
protection and enforcement, the Administration for Industry 
and Commerce, Chinese Trademark Office (CTMO) publishes 
useful data on trademark enforcement cases, including rates 
of referral, amounts of fines, case initiated ex-officio or 
upon complaint, and cases involving foreigners.  These data 
were published in 2005, but have not yet been made 
available for 2006.  Interim data suggest that the number 
of cases handled by AIC throughout the country in 2006 may 
have declined by about 13 percent, from 39,800 to 33,900, 
and that the number of cases involving foreign trademark 
holders may have increased by about 10 percent to 7,439. 
Among the key data points, only 111 cases were referred to 
criminal prosecution, or about 0.3 percent.  This was a 
decline of 53% from 236 cases in 2005, and undercuts 
Chinese assertions that it is increasing criminal 
deterrence by improving cooperation between administrative 
and criminal authorities. 
 
¶21. (SBU) In discussions the Embassy has had with the CTMO, 
it was suggested that this interim data may not include the 
entire end of year data and may need to be revised.  IACC 
suggests in its Section 301 submission that this data may 
reflect an increase in small scale raids on an ex-officio 
basis. 
 
¶22. (SBU) Despite these negative trends, during 2006, AIC 
had been responsive to several requests involving IPR 
enforcement.  For example, AIC issued a directive involving 
the Lance Armstrong Foundation, which resulted in some 
enforcement activities on behalf of that charity.   AIC had 
also closed down a website, www.xiangyangmarket.com, which 
involved the cooperation of several provincial authorities. 
SAIC also began to address in a more systemic manner the 
problems associated with abusive registrations in early 
2007, including cooperating with the USG on these issues 
 
BEIJING 00002103  010 OF 023 
 
 
and issuing guidance on abusive registrations by natural 
persons.  Of particular note, SAIC had directed local AICs 
to take steps against local markets.  At the IPR Working 
Group, it was revealed that in Guangdong Province alone, 
AIC had conducted investigations of 30 markets and 230 
shops, in which 208 cases of infringement had been 
uncovered, of which 116 involved foreigners.  As with trade 
fair statistics (noted below), this data underscores the 
particularly adverse impact that local markets have on 
foreign rights holders. 
 
------------------------ ------------------------ 
Copyright Administrative Enforcement Remains Weak 
-------------------------------- ---------------- 
 
¶23. (SBU) China's administrative copyright system continues 
to suffer from several basic limitations.  According to a 
recent Chinese government analysis the reasons for weakness 
in copyright enforcement are threefold: (a) lack of 
emphasis by many local enforcement agencies.  Although 
special campaigns began enthusiastically, there was no 
timely follow-through; (b) certain copyright industry 
officials lack adequate knowledge on copyright, and are 
using pirated products or engaged in piratical activities, 
especially in the Internet environment; and (c) inadequate 
enforcement human resources and IP knowledge, especially at 
the local level.  To these challenges might be added 
the legal requirement that copyright administrations only 
take enforcement actions that affect the "public interest" 
which may limit certain types of enforcement, such as 
software end user piracy. 
 
¶24.  (SBU) Copyright administrative enforcement data for 
2006 is not yet available.  During 2005, there were 9,644 
copyright cases handled by copyright bureaus throughout 
China.  Among these cases, 366 were referred to criminal 
prosecution, while 7,840 involved fines.  Cases were 
concentrated in Liaoning, Shandong, Guangxi, Guangdong, and 
Sichuan.  Only 38 cases "involved foreigners."  The three 
principal regions for enforcement were Guangdong, Beijing 
and Shanxi.  These cases presumably involved complaints by 
foreign rights holders and may underestimate the number of 
ex-officio cases involving foreign rights holders or 
involving foreign rights holders' products mingled with 
domestic products.  The referral rate to criminal 
prosecution in 2004 was 1% or 101 out of 9,691 cases; in 
2005 it was 3.8%, or 366 out of 9,644 cases. 
 
------------------- ------------------------ 
Numerous Copyright-Related Campaigns in 2006 
----------------------------------- -------- 
 
¶25. (SBU) There have been several copyright-related 
administrative campaigns in 2006.  Among the copyright- 
related administrative campaigns and activities were: 
 
March 30 - a circular was  issued by MII, NCA, Ministry of 
Finance (MoF) and Government Offices Administration of the 
 
BEIJING 00002103  011 OF 023 
 
 
State Council to require all government entities at 
national and sub-national levels to procure and provide 
sufficient funds to procure only PCs that are preloaded 
with legitimate operating system software. 
 
Late April - an enterprise legalization plan was jointly 
issued by the NCA, MII, MOFCOM, MoF, State-owned Assets 
Supervision and Administration Commission of the State 
Council (SASAC), All-China Federation of Industry and 
Commerce, China Banking Regulatory Commission (CBRC), China 
Securities Regulatory Commission (CSRC) and China Insurance 
Regulatory Commission (CIRC). 
 
Early June - NCA issued a notice to launch a campaign 
against hard-disk loading piracy as a step to implement the 
circular on pre-loading of legal operating system software. 
 
July 14 - China announced a 100 day campaign directed 
primarily at retail piracy.  Although there was a vast 
quantity of raiding, the results of the campaign did not 
significantly reduce retail piracy.  Industry surveys 
generally showed that availability of pirated product had 
declined during the campaign; however, pirated discs were 
still available at virtually the same level.  In some 
instances, the discs were removed to a back room or for 
ordering via catalog. Also during the 100 day anti-piracy 
campaign, the Ministry of Public Security reportedly was 
engaged in over 2,300 cases.  28,316,000 illegal 
publications were seized, 2,480 people detained, and 
criminal detentions and arrests for 379 people. 
 
August 2006 - China launched an Internet piracy campaign. 
During the four month crackdown ending in January, NCAC and 
its local offices investigated/handled 436 cases, imposed 
fines totaling RMB700,000 (USD90,000), and shut down 205 
illegal websites.  Six cases had reportedly been 
transferred to courts for prosecution; one led to a 
conviction.  According to press reports, NCAC had pursued 
nearly 130 cases brought by overseas copyright holders 
during the campaign, and 90 percent has been concluded. 
 
August 24 - The National Antipornography and Piracy Task 
Force (NAPP) issued a notice to copyright, press and 
publication and education bureaus regarding strengthening 
enforcement against university campus textbook piracy 
during the 100 day campaign. 
 
October 9 - General Administration of Press and 
Publications, Ministry of Education and National Copyright 
Administration issued an additional notice regarding 
cracking down on piracy of foreign textbooks. 
 
November 10 - The Ministry of Education issued a notice 
concerning cracking down on piracy of foreign textbooks.  A 
total of seven textbook piracy decisions were issued by 
year-end 2006. 
 
------------------------- ---------------------------- 
 
BEIJING 00002103  012 OF 023 
 
 
Limited Copyright Enforcement Against End User Piracy, 
Broadcast Piracy 
----------------------------- ------------------------ 
 
¶29. (SBU) There have been other year-long efforts 
undertaken on behalf of copyright interests.  In the area 
of software end-user piracy, local copyright authorities, 
according to BSA, have taken 22 administrative actions 
against enterprise end users based on BSA complaints but 
only two administrative penalties were issued.  There has 
been virtually no publicity surrounding these raids without 
penalties so they go unnoticed by the business community. 
Some cases were cut short when the raiding team was refused 
entry. 
 
¶30. (SBU) Broadcast, cable, and public performance piracy 
continues to be a problem in China.  The problem was also 
noted this year in a submission by CASBAA, which has 
recently increased its anti-piracy enforcement efforts in 
China.  The Mission has raised this issue from time to 
time, most recently in a meeting with the Beijing Law 
Enforcement Culture Task Force, which noted that it has 
undertaken administrative enforcement to stop the 
distribution of illegal cable piracy set-top boxes.  The 
problem, however, continues to be pervasive. 
 
¶31. (SBU) Also in 2006, cultural authorities launched the 
"Sunshine Campaign" to clear up audio-visual markets.  The 
campaign investigated 10,330 cases involving 3,184 
enterprises, with RMB1.98 million in illegal profits 
confiscated, and RMB 41.68 million in fines imposed. 
Licenses were revoked for 728 infringing companies. 
 
------------------- 
Optical Disc Piracy 
------------------- 
 
¶32. (SBU) In 2005, Ambassador Portman sent a letter to 
Chinese Ambassador Zhou Wenzhong requesting the closure of 
certain identified producers of optical discs.  China's 
response to this letter has been neither comprehensive nor 
transparent.  While some Chinese officials had complained 
that some of the titles identified in the letter were 
beyond the term of Chinese copyright protection, that 
certain production lines had already been closed and/or 
their owners punished, and that certain complaints were 
beyond the statute of limitations for administrative 
enforcement, there was no effort to respond to the letter 
in its entirety. 
 
¶33. (SBU) According to Chinese press reports and 
information from the JCCT IPR Working Group, 14 pirated 
optical disc production lines were closed by China in 2006. 
At the December 2006 JCCT IPR 
Working Group, the National Copyright Administration 
explained that during 2000-2005, China had taken action 
against 48 replicators.  Of the 14 cases closed by China, 
it was further reported that only one factory was referred 
 
BEIJING 00002103  013 OF 023 
 
 
to criminal prosecution. 
 
¶34. (SBU) In May 2006, Embassy visited the newly relocated 
Disc Production Source Identification Center (DPSIC) in 
Shenzhen.  DPSIC, which falls under the Ministry of Public 
Security, reportedly holds China's only complete exemplar 
library of optical discs produced in China and is also the 
only lab to house sound spectrogram and optical media 
"fingerprinting" equipment to conduct forensic analysis. 
(Note: At a meeting in February with Vice Minister Liu 
Binjie of the General Administration of Press and 
Publications (GAPP), Minister Liu denied that the DPSIC 
holds a complete exemplar library and advised that it only 
collects exemplars when a factory is under investigation. 
End Note.)  The lab can only identify discs produced on 
legally registered production lines.  On-site inspectors 
from GAPP are posted at every optical disc replicating 
facility in China in order to monitor disc titles and 
production equipment.  The lab's director, though open in 
discussing technical and procedural issues, expressed no 
interest in formally cooperating with foreign industry 
groups, arguing that such cooperation would be inconsistent 
with the organization's need to maintain objectivity. 
 
¶35. (SBU) Most U.S. industry groups and companies have 
described DPSIC as opaque and uncooperative and have been 
particularly frustrated with DPSIC's requirement that only 
domestic entities submit cases, the burdensome evidentiary 
requirement for submissions, and the long waits to obtain 
results. 
 
---------------------------------- 
State Food and Drug Administration 
---------------------------------- 
 
¶36. (SBU) During 2006, the Embassy actively supported 
several efforts to improve IPR protection for the 
pharmaceutical industry, including a seminar with the Japan 
and European patent offices, as well as advocacy for 
criminal pharmaceutical law reform. 
 
¶37. (SBU) China's pharmaceutical anti-counterfeiting regime 
suffers from the substantive and procedural deficiencies of 
its IPR regime.  During 2006, there were several negative 
developments, including several high profile cases 
involving counterfeit pharmaceuticals, continued 
proliferation of counterfeit drugs from China in markets 
throughout the world, continuing harm to Chinese patients, 
and increasing concerns over corruption in SFDA across a 
wide range of areas.  At the same time, there has also been 
a reluctance of the Chinese government to address problems 
such as lack of protection of data exclusivity, integrity 
of clinical data submissions for marketing approval, as 
well as legislative reform of China's counterfeit 
pharmaceutical law.  SFDA has itself been criticized for 
possibly selling or releasing clinical data to generic 
competitors of innovator companies.  Regarding its 
counterfeit pharmaceutical law, China needs to amend the 
 
BEIJING 00002103  014 OF 023 
 
 
law to conform to World Health Organization standards under 
which a drug that is deliberately misidentified as to 
source or identity, of whatever quality standard, is deemed 
a counterfeit. 
 
¶38. (SBU) According to China's own data, enforcement 
against counterfeit pharmaceuticals remains chronically 
weak.  Jin Shaohong, the first vice president of National 
Institute for the Control of Pharmaceutical and Biological 
Products, estimates counterfeit medicines at 5-10 percent 
of the China medicines market.  China also continues to be 
a major source of counterfeit pharmaceuticals worldwide. 
During a 2004 special campaign by SFDA, there were 154,000 
enforcement man-visits, involving 10,400 individuals, with 
fines of RMB1.653 million.  As a result of this activity, 
14 establishments were rectified, and only one had its 
license revoked.  Only two cases were referred to criminal 
prosecution.  In 2005 31,000 cases of 
fake and inferior drugs and medical appliances were 
handled, with value of RMB51.4 million, 59 licenses 
canceled, 530 counterfeit medicine workshops were 
destroyed, 214 cases transferred to PSB, and 36 criminals 
punished.  The "referral rate" was only 0.69 percent. 
Problems of counterfeiting pharmaceuticals have also been 
identified by the U.S. Pharmacopeia in evaluating drug 
quality in USAID assisted projects (Primo-Carpner and 
McGinnis, Matrix of Drug Quality Reports in USAID-Assisted 
Countries, July 2006).  Counterfeit Chinese artesunate, 
which may be manufactured in China has been identified as a 
possible reason for increasing malaria resistance. 
According to the industry-led Counterfeiting 
Incident Reports, China experienced the highest number of 
counterfeiting incidents -- 155 compared to 96 for the 
number two country, Russia.  (Kubic, Pharmaceutical 
Counterfeiting Trends: Understanding the Extent of Criminal 
Activity, Journal of Biolaw and Business (2006).  The 
system needs to be seriously improved. 
 
------------------------- --------------------------------- 
China Remains a Principal Concern Over Export of Infringing 
Goods 
--------------------------------- ------------------------- 
 
¶39. (SBU) By almost any measure, China is a major source of 
infringing goods worldwide.  More QBPC members cited China- 
origin counterfeit exports as accounting for at least USD 1 
million in lost revenue than cited any other country. 
Twenty-two percent of members estimated more than USD 1 
million in lost revenue due to counterfeit exports 
originating in China; only 14 percent of members estimated 
equivalent losses due to exports originating from other 
countries.  Worldwide, the OECD's preliminary estimate is 
that 80 percent of IPR seizures by Customs authorities 
originated from only ten countries, with China ranking the 
highest at 32 percent.  As reported by the 
ICC's Business Alliance to Stop Counterfeiting and Piracy, 
approximately two-thirds of Europe's seizures of infringing 
goods originate from China. 
 
BEIJING 00002103  015 OF 023 
 
 
 
¶40. (SBU) According to U.S. Customs and Border Protection, 
IPR seizures from China of infringing goods increased in 
both relative and absolute terms in 2006 to 81 percent of 
the total domestic value of all customs IPR seizures.  Hong 
Kong represented an additional six percent.  The total 
value of seizures from all countries was USD 155,369,236 
with 14,675 total seizures.  China-origin seizures in FY 
2006 were USD 125, 594,844, or almost double USD 63,968,416 
in FY 2005.  Footwear represented 49 percent of U.S. 
seizures from China in FY 2006, an increase from 12 percent 
the prior year. 
 
¶41. (SBU) U.S. Customs seizure data are one of the few 
benchmarks that the U.S. government collects regarding the 
magnitude of the IPR problems in China.  However, the total 
volume of Customs seizures is a fraction of a percent of 
total Chinese exports to the U.S. in 2006 and seizures may 
not correspond to the incidence of piracy and 
counterfeiting.  For example, exports of media and 
pharmaceuticals, known to be major categories for Chinese 
piracy and counterfeiting, represented only two percent and 
one percent, respectively, of the total FY 2006 Customs IPR 
seizures from China, and were too negligible to separately 
report in 2005. 
 
¶42. (SBU) Chinese seizures in 2006 increased dramatically. 
According to recent speeches by Chinese Customs officials, 
in 2006 there were 2,473 trademark related cases involving 
196.8 million infringing goods with a value of over RMB 200 
million.  These numbers suggest increases of more than 100 
percent.  In 2005, 98 percent of China's Customs seizures 
by value were export-related, while 96 percent of the cases 
were export-related.  In addition, the vast majority of all 
2005 seizures were trademark-infringing goods -- 1,106 in 
2005, versus 67 for copyright and 37 for patents.  Total 
seizures in 2005 were only RMB 99,780,000, or about USD 13 
million.  Both 2005 and 2006 seizures were a fraction of 
U.S. seizure levels.  Chinese data show that 36 percent of 
seizures in 2005 were for apparel, footwear, and caps, 
while less than one percent was for medicines and medical 
appliances. 
 
 
¶43. (SBU) The relatively high level of apparel seizures is 
consistent with U.S. Customs as well as overall OECD data 
on trade in counterfeit goods, which show that clothing and 
apparel were among the principal goods seized by the six 
countries with the largest numbers of seizures worldwide, 
including China.  See OECD Report. 
 
¶44. (SBU) Notwithstanding this data, exports of optical 
media and pharmaceuticals from China continue to be major 
problems, further underscoring the limitations of Customs 
seizure data for analyzing worldwide trends in infringing 
goods.  IIPA reports that infringing optical media from 
China has been found in nearly every major market in China, 
including but not limited to Germany, Italy, Australia, 
 
BEIJING 00002103  016 OF 023 
 
 
Norway, Belgium Canada, Mexico, the United States, Russia, 
the United Kingdom, Netherlands, Israel, Paraguay, 
Lithuania, Singapore, Taiwan, the Philippines, Indonesia, 
Vietnam, Hong Kong, Malaysia, Thailand, Chile, New Zealand, 
and South Africa.   U.S. law enforcement has also been 
involved in cases involving the export of pirated optical 
media from China.  In 2006 more than 75,000 Chinese-origin 
counterfeit Nintendo products alone were allegedly seized 
in 13 countries around the world.  Counterfeit Chinese 
pharmaceutical products have also been found throughout the 
world.  The impact of counterfeits is particularly severe 
in the developing world, including Africa.  (See, e.g., 
Nigeria criticizes China over counterfeit threat, Daily 
International Pharma Alert.  Feb 14, 2006; vol. 3, no 31. 
Available from www.fdanews.com; see also OECD Report). 
 
¶45. (SBU) The USITC provides an administrative procedure 
that closely follows U.S. civil IPR procedures, under 
Section 337 of the Tariff Act of 1930, to exclude goods 
that infringe patents and other rights from entering the 
U.S. market.  Fiscal year 2006 reportedly set a new high 
for Section 337 cases.  The USITC launched a record 40 
section 337 proceedings between October 1, 2005, and 
September 30, 2006.  According to statistics from China's 
Ministry of Commerce (MOFCOM), by the end of June this 
year, USITC had instituted 52 Section 337 investigations 
against Chinese companies.  Although China occasionally 
questions the TRIPS-compatibility of the US Section 337 
remedy, border measures against products that infringe 
patents may become increasingly important as Chinese 
exports continue to increase and may play an increasingly 
important role to the many companies frustrated in their 
efforts to stop infringement or gather evidence within 
China. 
 
--------------------------- ---------------------- 
WTO and Other Strategies on Exports of Pirated and 
Counterfeit Goods 
----------------------------------- -------------- 
 
¶46. (SBU) China's export-related border measures are not 
required by the TRIPS agreement.  While there are aspects 
of the regime that are problematic, such as the manner by 
which Chinese Customs disposes of counterfeit goods, the 
availability of an export remedy is in fact "TRIPS-plus," 
that is, China need not have an administrative export 
regime to satisfy the plain meaning of the TRIPS provisions 
regarding border measures.  The following are steps that 
have been considered to further deter infringing exports. 
 
QImproving criminal enforcement over exports of 
counterfeit goods should continue to be a priority.  China 
is obligated under TRIPS Article 61 to have criminal 
remedies against commercial scale counterfeiting and 
piracy.  Exports of such goods should also be considered 
such a "commercial scale" activity.  Such efforts were 
begun in 2004 with the revised Judicial Interpretation, and 
again in 2006 with referral procedures put in place and 
 
BEIJING 00002103  017 OF 023 
 
 
several criminal cases. 
 
QExperiments in Ningbo have shown that increasing 
inspection resources can reduce the numbers of domestic 
seizures of exported goods.  We may encourage a 
reallocation of resources to key ports that are the source 
of infringing goods.  While we are impressed with seizures 
undertaken by IPR officials in remote areas, such as Lhasa, 
IPR enforcement resources in China need to be more closely 
tied to evolving risk assessments. 
 
QThe track record of the sporting goods industries 
shows that one of the more effective ways of increasing 
seizures is by supporting broad identification and 
intelligence sharing between business and Customs officers. 
 
QChina should address legislative deficiencies in its 
export regime.  The Ministry of Culture's AV regulations do 
not require licensing for the export of optical discs, but 
only for import, sales, and distribution.  We have raised 
this several times with MoC, to no effect.  This limits the 
availability of other criminal remedies, such as illegal 
business operations for export-related transactions. 
Similarly, MOFCOM has the authority under China's Foreign 
Trade law to revoke licenses or impose penalties for 
companies engaged in the trade in infringing goods, which 
MOFCOM had previously promised th USG to use to deter 
companies that export infinging goods.  To our knowledge, 
such efforts have also not taken place.  As discussed at 
the December JCCT IPR Working Group, other agencies, such 
as AIC can also revoke business authority for companies 
operating Internet sites or business licenses for 
exporters. 
 
QEnhancing customs cooperation of China with U.S. 
Customs and third country Customs and trade officials can 
also help improve intelligence and thereby facilitate 
enforcement. 
 
QSystemic problems, such as recycling of seized goods 
through charities (which may occur without removing the 
infringing marks), might also be addressed elsewhere, such 
as in the current draft of the revised Trademark Law.  Such 
recycling efforts have regrettably been applauded in the 
Chinese press.  See e.g., "Hangzhou Customs Donates 1 
Million Seized Infringing Goods to the Red Cross" (China 
Intellectual Property News, March 2, 2007, at 5.) 
 
QWe can also use training programs such as the current 
Trade and Development Agency IPR Customs training program 
in Shanghai to advance many of these goals, as well as 
global efforts under the STOP initiative. 
 
---------------------------- 
Other Administrative Efforts 
---------------------------- 
 
¶47. (SBU) There have been several efforts undertaken in 
 
BEIJING 00002103  018 OF 023 
 
 
2006 to make the administrative system more "user-friendly" 
and effective.   Three of these efforts involved the "Blue 
Sky Campaign" to improve administrative enforcement at 
trade fairs, and the establishment of a nationwide system 
of IPR complaint centers in 50 cities throughout China, as 
well as an effort to improve local copyright enforcement by 
combining resources of the copyright-related agencies, such 
as the Ministry of Culture, Copyright Administration, Press 
and Publications, and Radio, Film and Television Bureaus. 
 
 
-------------------- 
Blue Sky/Trade Fairs 
-------------------- 
 
¶48. (SBU) At the start of 2006, various local governments 
and trade fair organizers had established policies or local 
regulations regarding the reporting of IPR infringements at 
trade fairs.  The Canton Trade Fair, China's largest, has 
had an IPR complaint center for several years.  In 2006, 
the central government took a more active interest in this 
area.  The Ministry of Commerce, in conjunction with other 
IPR-related ministries, promulgated the "Protection 
Measures for Intellectual Property Rights during 
Exhibitions" on January 1, 2006 (effective March 1, 2006). 
The Rules recommend that trade fairs of three days or more 
set up IPR complaint centers staffed by personnel from 
local patent, trademark, and copyright bureaus.  The 
guidelines operate on a "three strikes" principal, 
requiring rights holders to enforce their rights against an 
infringer at three consecutive fairs before consequences 
beyond warnings are incurred. 
 
¶49. (SBU) On May 29, 2006, MOFCOM and other ministries 
unveiled the Blue Sky Campaign to help implement the 
earlier promulgated "Measures."  The Blue Sky Campaign 
includes development of guidelines for reporting IPR 
infringement at trade fairs.  On-the-spot trade fair 
enforcement is typically a weak remedy, since evidence may 
be hard to obtain, companies may have little infringing 
merchandise available, and typically only a scaled down 
type of Chinese administrative enforcement is made 
available.  U.S. rights holders may also have difficulty 
locating hard-to-find complaint centers, staffed by non- 
English speakers, with simple complaint forms that are only 
available in Chinese.  Evidentiary requirements to document 
IP rights as well as powers of attorney, including 
notarizations and consularizations, can be inconsistent and 
overly burdensome by international norms.  Moreover, rights 
holders have confirmed that at some fairs, contrary to the 
guidelines, local IPR authorities have refused to be 
involved, even after being properly contacted by fair 
organizers.  A litigation brought by one U.S. rights holder 
in Shanghai for failure to recognize an obligation to 
enforce IPR rights was dismissed by a Shanghai court. 
Thereafter, the organizer banned the rights holder from 
exhibiting in trade fairs unless the litigation strategy 
was entirely dropped.  Finally, when U.S. rights holders 
 
BEIJING 00002103  019 OF 023 
 
 
have adequately documented their rights, alleged infringers 
are typically "punished" with a warning to remove offending 
products from their displays; in some cases, infringers 
replace offending products once they think "the heat is 
off." 
 
¶50. (SBU) Apart from these remedies, we are unaware of any 
effort to secure civil or criminal judicial relief by 
reason of a trade fair infringement.  In certain instances, 
Chinese law needs to clarify when an "offering for sale" 
constitutes an infringement of rights, and what remedies 
are available.  At the JCCT IPR Working Group in December 
2006, it was revealed that during the most recent Canton 
Trade Fair, 472 complaints had been accepted, of which 419 
cases were determined to have involved IP rights, and 182, 
or 38 percent, involved foreign rights holders.  This high 
level of foreign-related complaints further underscores the 
importance of an effective trade fair remedy.  We 
appreciate, however, efforts by MOFCOM to establish IPR 
complaint centers to address trade fair infringements, and 
we look forward to working with MOFCOM and local trade fair 
organizers to achieve meaningful and effective IPR 
enforcement at trade fairs.  With the FY 2007 launch of 
USDOC's Initiative to Protect IPR at Trade Fairs for events 
DOC sponsors or supports, the Foreign Commercial Service 
and USPTO will benchmark and monitor the effectiveness of 
IPR protection at Chinese trade fairs and will engage trade 
fair organizers to improve ineffective policies and 
procedures as a condition for future USDOC support. 
 
--------------------- --------------------------------- 
Patent Administrative Enforcement of Continuing Limited 
Utility to Americans 
---------------------------------- -------------------- 
 
¶51. (SBU) Administrative enforcement of patents has 
historically not been a priority for USG, in part because 
the U.S. lacks a criminal patent infringement law but 
instead uses deterrent civil remedies. Administrative 
patent infringement cases initiated in 2006 totaled 1,270; 
in addition 973 cases were concluded during this period. 
Only 16 percent of the patent cases involved invention 
patents, which are of primary concern to foreigners.  In 
fact only 7.5% of the administrative patent infringement 
cases involved foreigners.   There were 43 other types of 
patent cases, of which 21 were concluded.  Among these 
"other types" of cases, the principal disputes involved 
patent ownership (67%) and rights to remuneration for 
patent filings for service inventions (25%).  There were 33 
counterfeit patent cases, and 933 instances of passing off 
of patents (passing non-patented products off as patented 
products or of passing non-patented processes off as 
patented processes) and 12 cases were referred to criminal 
prosecution.  This referral rate is in fact higher than 
many other IPR administrative agencies. 
 
--------------------------------------------- ------ 
Overall Administrative Enforcement is Pervasive and 
 
BEIJING 00002103  020 OF 023 
 
 
Difficult to Assess 
--------------------------------------------- ------ 
 
¶52. (SBU) There are other active areas of administrative 
enforcement in China that may implicate IP Rights.  For 
example, the State Tobacco Monopoly investigated 330,000 
counterfeit cigarette cases in 2006, a decrease of five 
percent from the 347,000 cases in 2005.  A total of more 
than nine billion counterfeit cigarettes was seized in 
2006, an increase of 24 percent over 2005.   Perhaps due to 
the lost tax revenue, China arrested 6,334 people and 
sentenced 2,313 people for cigarette counterfeiting, 
increases of 19 and 36 percent, respectively.  Chinese- 
origin counterfeit tobacco products have been the subject 
of U.S criminal investigations and customs seizures as 
well.  The total volume of arrests and convictions is much 
greater than the arrests and convictions under China's 
criminal IPR laws previously noted, perhaps due to lost tax 
revenue. 
 
¶53. (SBU) Another area is fake and shoddy goods.  These 
cases are brought by the Technology Supervision Bureau of 
the Administration for Quality Supervision, Inspection, and 
Quarantine (TSB).  During 2006, there were reportedly as 
many as 180,000 such cases.  Fake or shoddy goods valued at 
3.1 billion RMBwere also destroyed.  From January to 
October2006, 111 uch cases were transferred for criminal 
investigation.  Although foreign rights holders do use the 
TSB to pursue counterfeiters, it is unclear from the data 
 
SIPDIS 
how many such cases involved trademark counterfeiting. 
 
¶54. (SBU) Other agencies with administrative enforcement 
authority include: the Ministry of Agriculture for 
counterfeit seeds and production materials, the Ministry of 
Construction and Municipal Supervision for regulation of 
vendors of pirated or counterfeit goods, and the Ministry 
of Public Security for a wide range of offenses.  In 
addition, the civil courts have authority to refer criminal 
matters to criminal prosecution, which is rarely done. 
 
------------------------- ----------------------------- 
Coordination and Referral Issues: The Structure Remains 
Overly Complex 
--------------------------------- --------------------- 
 
¶55. (SBU) China's IPR system is largely ineffective, but 
not due to a lack of enforcement activity.  Today's China 
may be the most litigious IPR society in the world, with 
among the lowest level of overall effectiveness and the 
highest complexity due to overlapping authorities, laws, 
regulations, rules, local practices, etc.  China urgently 
needs higher quality, deterrent enforcement with a minimum 
of procedural baggage.  China's current system establishes 
a brisk market for "forum shopping" where rights holders 
should be maximizing their enforcement dollar among various 
alternatives of varying ineffectiveness which involve 
different costs, advantages, and disadvantages, including 
varying enforcement at local levels.  Rights holders may 
 
BEIJING 00002103  021 OF 023 
 
 
also be considering seeking overseas enforcement as a 
costly but more limited alternative. 
 
¶56. (SBU) Viewed as a system with multiple competing fora, 
the relatively high level of civil copyright litigation 
likely reflects both the high incidence of piracy and the 
relative weakness of the copyright administrative and 
criminal enforcement system, thereby forcing victims to 
bring civil litigations in lieu of criminal or 
administrative complaints.  By contrast, the relatively 
high level of administrative and criminal trademark 
litigation results in a proportionately low level of civil 
trademark adjudication.  Moreover, the low level and 
effectiveness of patent and trade secret litigation 
increasingly forces foreign litigants to bring cases 
overseas, such as through Section 337 cases in the United 
States or even through criminal cases brought overseas. 
 
----------------------- ----------------------------------- 
Chinese Ministries Have Sought Greater Coordination in 2006 
------------------------------------ ---------------------- 
 
¶57. (SBU) In 2006, national and local Chinese ministries 
issued several documents guiding the referral and 
coordination of administrative, criminal, and even civil 
cases.  Many of these documents suggest useful means to 
further coordinate and improve IPR enforcement, 
particularly criminal IPR enforcement.  At a national 
level, the procuratorate, public security, copyright, 
customs, trademark and other authorities jointly 
promulgated four rules including the "Regulations on Timely 
Transfer of Suspected Criminal Cases in Administrative 
Enforcement" and "Provisional Rules on Strengthening 
Coordination in Combating IP-Related Crimes."  In addition 
to this effort, in April 2006, the National Working Group 
for IPR Protection formulated China's Action Plan for IPR 
Protection 2006, including 160 separate measures.  Part of 
these measures included setting up 50 staffed IPR complaint 
centers throughout China, which was completed in 2006. 
 
--------------------------- ------------------------- 
Ministry of Public Security Launches Mountain Eagle 2 
Campaign 
------------------------------------ ---------------- 
 
¶58. (SBU) During 2006, MPS launched the Mountain Eagle 2 
campaign, which appears to have resulted in increased 
arrests and seizures of infringing materials, although the 
disposition of seized goods and the outcomes of criminal 
cases remain largely obscured by lack of transparency.  MPS 
reported over 3,000 cases being established, 2,300 cases 
"cracked" and investigations of 3,600 suspects.  In 
response to U.S. requests, MPS also assembled an internal 
IPR coordination steering group on a national and local 
level to better integrate the various divisions of MPS and 
local PSBs involved in IPR crime.  This group has provided 
support for many cases, as well as useful training and 
engagement.  For example, MPS sponsored a program in 2006 
 
BEIJING 00002103  022 OF 023 
 
 
on how to file a criminal copyright case that was supported 
by the U.S. Embassy and attended by U.S., foreign, and 
Chinese rights holders.  In the critical area of exports, 
Chinese customs has reportedly attempted to transfer at 
least 20 cases to the Public Security Bureaus for 
investigation.  Additional data is needed before judging 
whether there have been demonstrably more referrals of 
administrative trademark and copyright cases. 
 
---------------------------------------- 
Human Rights Concerns in IPR Enforcement 
---------------------------------------- 
 
¶59. (SBU) Efforts to improve IPR enforcement in China also 
need to be geared to other key issues, such as protection 
of human rights and rule of law.  Some of those concerns 
involve freedom of religion and information.  In many 
instances, the ethical consequences need to be carefully 
weighed.  For example, "illegal business operations" cases 
have been brought against individuals who distribute 
bibles.  China's recent complaints against piracy of 
Chinese movies on U.S. cable television stations may also 
be directed towards the outlawed cult "Falun Gong," which 
may be an investor in many of these stations.  Culture 
bureaus that bring copyright or illegal business operations 
cases also function as censors of information, which raises 
concerns about how strongly we should strengthen their 
operations. 
 
¶60. (SBU) Generally speaking, the Mission believes that the 
protection of private property, rule of law, and IPR are 
mutually compatible messages.  Occasionally, however, 
punishments may be imposed without proper process or in a 
disproportionate manner.  For example, the Nanjing City IPR 
Whitepaper released in 2006 identified several instances 
where re-education through labor has been used for IPR 
offenses, perhaps for juveniles.  There have been several 
reported instances where organized criminal groups have 
hired pregnant or nursing women, or minors, in order to 
evade liability.  There were also cases in 2006 where 
rights holders were able to detain or imprison infringers 
for several months without trial.  As was discussed at the 
first Ambassador's roundtable on IPR in 2002, U.S. rights 
holders in China generally recognize that good IPR 
protection and enforcement must occur in an environment 
where rule of law is protected, and our efforts should be 
geared to ensuring such procedures are in place. 
 
--------------------------------- 
Other Industry/Government Efforts 
--------------------------------- 
 
¶61. (SBU) There were several efforts under way in 2006 to 
improve cooperation between U.S. business and the Chinese 
government.  Various industry copyright trade associations 
executed memoranda of understanding with the Chinese 
Ministry of Culture, National Copyright Administration, 
State Administration of Radio, Film, and Television and 
 
BEIJING 00002103  023 OF 023 
 
 
others to improve copyright protection.  MPAA and BSA 
executed another agreement with the National Copyright 
Administration of China to enhance our collective efforts 
to combat Internet piracy.  Local MOUs have also been 
undertaken, such as with the Chaoyang District government 
in Beijing (where the Embassy is located) to improve 
copyright enforcement and coordination, and an MOU between 
the U.S. Chamber and Jiangsu government.  Other agencies, 
such as the Ministry of Public Security, have also sought 
MOUs with U.S. industry.  The European Chamber concluded an 
agreement regarding assistance with the IPR complaint 
centers in Guangdong and Jiangsu, while the U.S. Chamber is 
also building a network of MOUs to improve local 
cooperation.  Many of these efforts are geared towards 
improving administrative enforcement.  The MOU signed by 
the Motion Pictures Association in conjunction with the 
2005 JCCT has generally resulted in some increased 
transparency on enforcement issues and responsiveness to 
specific requests for action.  Industry hopes that the NCA 
MOUs will bring concrete results despite the severe 
resource limitations imposed on NCA. 
 
¶62. (SBU) The MOUs with copyright-related agencies appear 
to target pre-release and early-release piracy.  China has 
achieved limited success in this area, including the 
release of "Shrek 2," as well as with the Chinese movie 
"The Promise" in Jiangsu Province.  However, such efforts 
are frequently constrained by administrative resources and 
penalties. 
 
-------------------------- ----------------------------- 
Conclusion: The Challenge of Coordination to Support the 
IPR Agenda 
------------------------------------ ------------------- 
 
¶63. (SBU) The IPR issues in China continue to become more 
complex.  The Mission has been proud to support activities 
that provide a platform for sharing of information on IPR 
issues.  Because of these complexities, we believe it is 
critical that USG agencies continue to adopt as inclusive 
an approach as possible in the 301 process and other IPR- 
related negotiations.  The Mission supports continued 
Section 306 Monitoring and Priority Watch List status for 
China, as well as a possible WTO case if negotiations 
cannot resolve the problems to the satisfaction of USTR and 
industry. 
 
¶64. (U) Post welcomes inquiries on IPR issues in China, and 
would be pleased to provide further details and 
clarification, as necessary. 
 
RANDT